India to be 3rd-largest economy by 2030, but population poses challenges: S&P

“India is poised to be the fastest-growing major economy over the next three years and the third largest globally by 2030,” the ratings firm said in a report titled ‘Look forward Emerging Markets: A decisive decade’.

Emerging markets will play a crucial role in shaping the global economy over the next decade, averaging 4.06% GDP growth through 2035 compared with 1.59% for advanced economies, it said.

By 2035, emerging markets will contribute about 65% of global economic growth. This growth will be driven mainly by emerging economies in Asia-Pacific, including China, India, Vietnam and the Philippines. “By 2035, India will be cemented as the world’s third-largest economy, with Indonesia and Brazil ranking eighth and ninth, respectively,” S&P said. The country is projected to achieve an average annual growth rate of 5.9% between 2024 and 2035, second only to Vietnam. India is aiming to become a $30 trillion economy by 2047, from the current $3.6 trillion. It is currently the fifth largest economy.

India, it said, has also taken measures to improve its weak fiscal flexibility by boosting capital expenditure, further supporting long-term growth. “Its 2024 entry into JP Morgan’s Government Emerging Market Bond Index could provide additional government funding and unlock significant resources in domestic capital markets. This is only a first step – investors will continue looking for improved market access and settlement procedures,” S&P said.

But population challenges are meaningful, with the country expected to have the world’s largest population by 2035. This presents mounting challenges in basic service coverage and growing investment needs to maintain productivity, S&P said.The report also highlighted India’s growing consumer spending on goods, set to increase by 7% in the next five years from $1.29 trillion in 2024 compared to inflation-adjusted growth of 4.8% in the previous five years.Despite its promising future, current economic performance has shown signs of slowing, according to a report by Nomura.

The Nomura India Coincident Activity Index (NICAI), which tracks investment, consumption and the external sector, revealed a year-on-year growth slowdown to 4.1% in August from 6.5% in June and 7% in March. It will fall to 3% year-on-year in September, according to preliminary estimates. Factors contributing to this slowdown include declining sales of passenger vehicles, modest growth in consumer goods output, weaker sales of medium and heavy commercial vehicles, moderate infrastructure growth, and sluggish merchandise export growth in September.